Yahoo Finance Bleak 2025 interest rates call for struggling Aussie homeowners: 'Largely Ignored'
A leading industry forecaster said talk about mortgage relief this year is neglecting a major issue.
A leading industry forecaster has predicted the first round of mortgage relief for struggling Aussie homeowners won't come until 2025. Oxford Economics Australia said government spending on relief like energy rebates might help the economy, but it won't be the silver bullet for inflation.
Inflation may hit the Reserve Bank of Australia's (RBA) target band of 2-3 per cent by the end of this year. But Oxford Economics Australia's head of macroeconomic forecasting said the central bank will "largely ignore" this because “utilities subsidies [are] providing much of the disinflation impetus".
“Given the RBA’s hawkish rhetoric, we don’t see rate cuts coming until the second quarter of 2025," Sean Langcake added.
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“The labour market has defied a marked slowdown in activity, which is testing the RBA’s very patient approach to bringing inflation back to its target,” he said.
“Concurrently, a significant easing in fiscal policy will give the economy a boost, which is welcome for households, but less so for inflation hawks.”
Are you struggling with your mortgage and want to tell your story? Email stew.perrie@yahooinc.com
Why a rate cut could still be on the cards in 2024
A rate cut in mid-2025 goes against others who have been predicting the RBA will be forced to provide mortgage relief this year.
Economist and Yahoo Finance contributor Stephen Koukoulas said the RBA can't ignore a downward trend in inflation.
"If the RBA were to place a higher weight on the actual inflation rate — not the trimmed mean measure — it would be cutting interest rates like the bulk of the central banks around the world," he wrote.
"Inflation is in target and could fall further through 2025 as the economy limps along. The RBA may change its tune in the months ahead. I think it will."
Commonwealth Bank remains the only one of the Big Four banks tipping a 2024 rate cut, with the bank's head of Australian economics Gareth Aird saying inflation will fall faster than the RBA's forecast over the next few months and unemployment will rise.
"We continue to side with market pricing and think it more likely than not we will see an interest rate cut by the end of the year. That might look odd given the Governor’s recent comments," he said.
Several banks have also started cutting rates on fixed mortgages (which you can read about here), with some experts pointing to that as a sign the RBA could be about to introduce a cut.
RBA governor Michele Bullock revealed following the central bank's August interest rates meeting that a cut this year would be highly unlikely.
Minutes from that RBA meeting noted that “based on the information available at the time of the meeting, it was unlikely that the cash rate target would be reduced in the short term” but it noted “it was not possible to either rule in or rule out future changes in the cash rate target”.
But finance expert Ben Nash told Yahoo Finance the RBA doesn't have to be fully transparent with the public.
"It's why over the last little while that inflation has been higher, the RBA's commentary is taking a really tough stand saying, 'We will increase further if we have to ... We're watching the data closely'.
"That keeps everyone on edge. It keeps everyone behaving cautiously, whereas if they say, 'Well, we're going to kick back and we'll probably cut it next, then people's behaviours change."
Impact of 12-year high interest rate since November
The RBA has increased interest rates more than a dozen times since 2022 and it's now at a 12-year high of 4.35 per cent.
Fresh data from RateCity shows repayments on a $500,000, 30-year mortgage hit $3,105 a month for the June 2024 quarter, compared to $1,989 in the March 2022 quarter when the hikes started, for a $1,116 increase per month.
The value of home loans in arrears by 30 to 89 days is also rising and now stands at $14.9 billion, according to the APRA Quarterly ADI Property Exposure data for the June 2024 quarter.
In March 2022, the value stood at $5.9 billion.
“Some Australians saddled with mortgages are struggling to keep up with the repayments, as more households fall into arrears,” RateCity.com.au money editor Laine Gordon said.
“Despite record high levels of savings in the bank, some families are dipping into their offset stash to keep up with rising cost of living pressures.
“These are worrying signs for borrowers, but let’s not throw the baby out with the bathwater.
“Non-performing loans accounted for just 1.03 per cent of all credit outstanding in the June 2024 quarter, that’s a slight increase from 0.91 per cent in the year before Covid.”
Australia’s inflation fight contrasts with other leading, which are moving towards cuts.
- with NCA Newswire
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